08 Dec 2019

 Bank of Botswana Monetary Policy Committee has maintained the bank rate at 4.75 per cent as inflation outlook is deemed positive due to subdued domestic demand pressures.

Briefing the media recently, Bank of Botswana governor, Mr Moses Pelaelo said inflation was forecast to remain below the bottom end of the objective range in the near term but should revert to within the objective range in the second quarter of 2020 and into the medium term.

“This outlook is subject to upside risks emanating from the potential rise in administered prices and government levies and or taxes beyond current forecasts. However lower growth in global economic activity, technology progress and productivity improvement present downside risks to the outlook,” he said.

Mr Pelaelo said the economy grew by 3.9 per cent in the 12 months to June this year compared to a faster expansion of 4.9 per cent in the corresponding period last year.

That, he said was mainly because of deceleration in growth of the mining sector while growth in non-mining GDP also slowed in the review period. “Mining output grew by 1.4 per cent in the year to June this year compared to an increase of 5.6 per cent in the corresponding period in last year. The lower increase is mainly due to significant reduction in growth of diamond output from 11.8 per cent to one percent in the review period, attributable to the decline in production by Orapa mine, following a planned plant shutdown in April 2019,” he added.

Mr Pelaelo explained that non-mining GDP grew by 4.2 per cent in the twelve months to June 2019 compared to 4.8 per cent in the corresponding period ending in June 2018.

He said the lower expansion in non-mining GDP was largely due to slower growth of the trade, hotels and restaurant sector mainly reflecting weak performance in the downstream diamond industries.

“Projections by government indicate that domestic economic activity will expand by 3.6 per cent and 4.4 per cent in 2019 and 2020 respectively. The projections have been revised downwards by 0.7 and 0.2 percentage points for the two respective years. The weaker performance is mainly attributable to the expected decline in the rate of growth of the mining sector due to lower diamond production,” he said. 

Talking about the global economy, he said it was projected to ease to three per cent this year, the lowest since the global financial crisis of 2008/09 down from 3.6 percent in 2018.

He said the slowdown was due to among other factors broad based deceleration in growth of industrial output and trade as well as low business confidence and weaker investment amid trade and geopolitical tensions.

“Furthermore global economic performance is undermined by lack of traction of structural reforms in the advanced economies and China, while country idiosyncratic factors weigh down on growth in some emerging market economies. Overall global output is expected to expand modestly by 3.4 per cent in 2020. 

The projected recovery mainly driven by emerging markets and developing economies remain precarious with elevated downside risks in an environment of policy uncertainty and sustained negative impact of trade and geopolitical tensions on business confidence, investment and growth,” he added.

He said regionally, economic activity in South Africa remained subdued and the South African Reserve Bank projected GDP growth rates of 0.5 per cent and 1.4 per cent in 2019 and 2020 respectively.

Mr Pelaelo said the current state of the economy and the outlook for both domestic and external economic activity suggested that the prevailing monetary policy stance was consistent with inflation being within the objective range of 3-6 per cent in the medium term. Ends